March 9 (Bloomberg) -- On Tuesday, Feb. 27, an acorn fell on stock markets. Ever since, some commentators and a lot of journalists, like Chicken Little, have been exclaiming, ``Oh my goodness! The sky is falling! I must go and tell the king.''

In this case, the acorn was a 416-point drop in the Dow- Jones Industrial average, enough to cause anyone to say, ``Ouch!'' And the spread to Treasuries for yields on junk-rated bonds rose.

There has been no deluge of acorns, though, and that rise in yields was a modest one from what were near-record lows. More importantly, both stock and bond markets have continued to function normally.

And at this point, there isn't even a hint that Federal Reserve officials are thinking about easing monetary policy in response to the markets' hiccup.

Nevertheless, there have been numerous wrong-headed comparisons to the worldwide crisis that followed the Russian government bond default in August 1998, which the Fed responded to by cutting rates.

The hallmark of that situation wasn't just a flight from risk; it was a demand for highly liquid assets that could be most easily traded.

As then-Federal Reserve Chairman Alan Greenspan said, it was as if markets had ``seized up.'' No market seized up following Feb. 27.

``This is very different than 1998,'' Paul Sheard, global chief economist at Lehman Brothers Holdings Inc., said in a March 7 interview. We're a long way from that situation.''

``It's not as if we had had a long bear market and this was another big leg down,'' Sheard said.

Indeed, at yesterday's close, the S&P 500 Index stood at 1401.89, almost 10 percent above its level of 1278.47 12 months ago.

Sky Isn't Falling

In 1998 Peter R. Fisher, chairman of BlackRock-Asia, was head of the New York Federal Reserve Bank's Markets Group and deeply involved in monitoring worldwide markets.

Fisher, too, sees few similarities to what happened then and the markets' stutter steps in recent days.

``The U.S. economy looks pretty good,'' Fisher said in an interview on March 7. ``I don't see the sky is falling.''

The 75 economists surveyed by Bloomberg News from March 1 to March 7 also see little enduring impact from the markets' declines. The median estimate of the group is that the U.S. economy may expand at a 2.4 percent annual rate this quarter and accelerate to a 3 percent rate by year's end.

Greenspan's Probability

Of course, those forecasters could be wrong. For instance, in a Bloomberg interview on March 6, Greenspan said he sees a ``one-third probability'' the economy will enter a recession later this year.

That pronouncement has gotten a great deal of attention. It's almost as if the former Fed chairman said a recession is likely rather than that the odds are 2-to-1 against it this year.

There have even been complaints that Fed Chairman Ben S. Bernanke and his colleagues in their public statements have been seeking only to reassure investors rather than disclose just how worried they really are.

Bernanke and those colleagues have all said that the markets' increased volatility and price declines haven't caused them to change their expectations for the economy's performance later this year. Their outlook is essentially the same as the median estimates of the 75 economists surveyed by Bloomberg.

Not 1998 Again

In a March 5 speech to a bankers' group in Washington, Fed Governor Kevin M. Warsh said it would take time to understand fully the importance of the recent market movements.

``I would only note that while premiums on riskier assets rose some last week, markets are functioning well amid higher volatility, market discipline appears effective as investors are reviewing their positions, and overall liquidity does not appear to be in short supply,'' Warsh said.

In other words, this isn't 1998 all over again.

Another of those colleagues, Charles Plosser, president of the Philadelphia Federal Reserve Bank, told reporters on March 6 that neither the stock market decline nor the losses in the subprime mortgage market caused him to change his forecast for 2007.

``I don't see any real signs of a liquidity crisis,'' Plosser said. ``There is ample liquidity around the world whether you look at financial markets, deals being done. Long-term rates haven't really moved that much under these circumstances, nor have short-term rates.''

Housing Weakness

As for mounting problems in the subprime mortgage market, he said, ``We have to keep in mind the subprime market is still a very small market.''

The housing sector is indeed weak, particularly given the large backlog of unsold new homes. Lehman Brothers' Sheard said the housing drag on U.S. growth should gradually diminish and then disappear by the end of the year.

As that drag lessens, growth is likely to pick up again albeit modestly, according to the Lehman forecast.

Meanwhile, the mainstay of the economy, consumer spending has shown little sign of being affected by the loss of some housing wealth.

And yesterday the Fed said in its quarterly Flow of Funds report that household net worth rose to $55.6 trillion in the third quarter of last year from $54.3 trillion in the previous three months.

That's certainly a solid base to support more spending going forward.

(John M. Berry is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: John M. Berry in Washington at jberry5@bloomberg.net.

Last Updated: March 9, 2007 00:07 EST